Oshkosh Corporation (OSK) Earnings Call Transcript & Summary

Good morning, everybody. Welcome. I'm Pat Davidson, Senior Vice President of Investor Relations at Oshkosh. It's great to see so many faces in the room. We lost a couple overnight with COVID, but I see the Hardy group is here and welcome braving the weather. Thanks for making the trek out of your basements and home offices, right? So to all of you here in the room and those watching virtually, welcome to our Investor Day 2022. It's been a couple of years since our last official Investor Day, and we're very, very happy and proud to be sharing with you today. The opportunity to learn more about our company, learn more about our people and learn more about the tremendous opportunities that we expect to leverage as we grow and drive shareholder value. Before we get too far, I'd like to make a few comments regarding our forward-looking statements. So we're making statements today relating to our targets and objectives regarding 2025 outlook. By their nature, the risks and uncertainties associated with these targets and objectives are greater than those associated with near-term guidance and should not be construed as guidance. Therefore, investors and analysts should consider these statements regarding the 2025 outlook as targets rather than promises of future performance or absolute statements. So we invite you to review these risk factors, and consider them when you evaluate our company as an investment. So we have an informative and outstanding lineup for you today over the next 90 minutes or so, followed by Q&A and then lunch for those of you here in the room. I'll give a brief summary of some of our key themes and review our speakers, and we'll get going. So we'll kick it off with John Pfeifer, our CEO and President. He'll discuss the 2025 targets, our strategy, our growth drivers as well as our culture and sustainability leadership. Next up will be Jay Iyengar, our Chief Technology Officer, who will focus on how we innovate and develop some of the world's most advanced products. She'll demonstrate our technology leadership, and how innovation and technology are key enablers of our growth. We'll take a short break after Jay's comments, and we'll come back together again to hear Mike Pack, our CFO, who will provide an in-depth review of our 2025 financial targets and discuss our capital allocation strategy, which we all know is a highlight of these investor days. Following Mike, we'll finish up with about 30 minutes or so of Q&A both in the room and online. So those of you connected online, hopefully, you see it in your interface. With that said, we look forward to the day, and I will turn it over to you, John.

Thank you, Pat. Good morning, and welcome. We have many of us in the room today, but many, many more are also connected virtually. I must say, a lot of people in the room today, I've only met prior to this on a computer screen. So actually meeting people face-to-face is really energizing. It's an exciting time for Oshkosh Corporation as we move into an era of accelerated growth. Oshkosh is an innovation company and innovation will drive that growth. We've been innovating for 105 years, but now our ability to innovate is more evident than ever. It's manifesting itself with significant new product programs, allowing us to expand our business in existing markets, but also new markets. Our innovation culture will drive accelerated growth. Our road map to growth is what we call Innovate, Serve, Advance. And I'm going to play a short video now where Oshkosh Executive Florence Makope explains what Innovate, Serve, Advance means to us and to our customers. [Presentation]

So today, we're going to talk about an era of accelerated growth. But first, let me explain what that means. What does it mean when we say accelerated growth? Well, when we compare our grounded growth forecast with past eras in Oshkosh history, we see higher growth going forward, what we call accelerated growth. And if we compare our grounded growth forecast to our industry peers, again, we see higher growth or accelerated growth. This faster revenue will deliver even faster operating income and yet faster EPS growth. So on this slide, what's the foundation for that growth. Let's just overview the foundation. First, we've got a powerful purpose that unites us and focuses 15,000 people to get the job done. We see favorable market dynamics across all of our end markets. We're a technology leader. We lead in areas like electrification, autonomy and others, and we will leverage that technological capability. Furthermore, we have new and adjacent markets that represent material growth for our company. You see it already in last mile delivery, wildland fires, agriculture, combat vehicles and our M&A strategy will allow us to expand upon those growth initiatives. Finally, we have very strong financial performance, a strong balance sheet and strong cash generation, and that underpins our ability to invest in organic program development as well as inorganic investment, all while continuing to return cash to shareholders. So let's look at the specifics of what I'm talking about. I'll provide an overview and Mike is going to give more detail in a few minutes. 2025 financial targets, we're looking at revenue from $10 billion to $11 billion in 2025. That's a compounded annual growth rate of over 6% up to 9.6%. And this does not include any benefit from future M&A activity that we will be engaged in. This is a purely organic number. From an operating margin perspective, we will deliver 380 basis points to 450 basis points of margin improvement. That takes us to double digit in 2025. New product programs, new technology, new contracts already won, deliver the higher margins. Let's look at EPS. Simply put, we'll double our EPS to $11 to $13 in 2025. So these growth rates, high single-digit revenue growth, OI margin, operating margin to double digits and doubling of the EPS. We believe that that's reflective of top quartile performance. So let's look at how we're focused, how are we going to focus to get this done? Well, first of all, growth opportunities are always driven by shifts and movements in society, and we try to position ourselves in front of these trends. So what are the mega trends we've been paying attention to? You're familiar with most, if not all of them. Climate change and resource scarcity, this is an imperative for everyone today. The sharing economy, we see resources being maximized more and more and more via the sharing economy. The global marketplace, to me and to all of us, nationalism seems to be out there, but I think it's a fad. There is no mistake that we are in a global marketplace and a global economy. The digital future. Digitization and the connectivity of everything is creating huge sources of future value creation. And the productivity imperative, resources are scarce today, and productivity is therefore critical to driving growth. And of course, we're all living more and more in an urban world. So where are we making investments to solve these problems and take advantage of the trends? First of all, is electrification, designing electric vehicles that do 3 things: reduce emissions, increase performance, and lower the total cost of ownership. When we combine these 3 attributes into our product development programs, they become blockbuster hits. Autonomy and active safety is a huge focus for us. We empathize with the everyday hero, the soldiers, the firefighters. We intend for our vehicles and equipment to be so intuitive and so safe that the operator does not need to be thinking about it. They just need to focus on the job or the mission that they're there to do. So if you're in one of our aerial work platforms working at 180 feet in the air, well, if we look at it from the ground and look up, it may not seem like it's that big of a deal. But when you're up there at 180 feet, it's a little intimidating. We don't want the operator thinking about how to operate the equipment up there. We don't want the operator thinking about the safety systems. We want them to be so confident that they just focus on the job that they're there to do. And autonomy is critical in advancing this intuitive, safe operation. Let's talk about intelligent connected products. They provide opportunity to transform value creation for customers, and it's a big driver of our serve or life cycle strategy. We're connecting products using advanced analytics to monitor vehicle health, improve utilization, lower cost and simplify fleet management. So we continue to advance this technology using data science to give our customers and the operators the insight into how to be more productive and safer while they're working. Advanced analytics and digital is not just about making our products intelligent, it's also about digitally connecting our operations to drive improvement in productivity, quality and safety. We leverage data to predict outcomes and improve our business decisions. So we connect people, we connect processes and we connect equipment. We connect it digitally to enhance productivity. Every day, when a plant manager arrives early in the morning, they worry about what's happening in the operation that they need to know, but they don't know. Where is productivity, for example, dropping due to material flow issues or other factors? Where might there be a safety risk? Well, digitally connecting our operations gives management real-time information, so they can address issues as they're happening or even better before they happen versus finding out about a problem long after it occurred. And even from a supply chain perspective, we're using data science and predictive analytics to provide more and more visibility to optimize the supply chain going forward. So I want to talk for just a minute about Innovate, Serve, Advance. First of all, technology is relevant in every part of Innovate, Serve, Advance. Let's first talk about Innovate. We're always focused on our primary purpose, productivity and safety for the everyday hero. We have a strong innovation history in doing that and how we do it today is really driven by our technological capabilities, electrification, autonomy, analytics, intelligent connected products. Combining our market-leading positions that we have in our end markets with advanced technology is a very powerful combination. Innovation drives higher customer satisfaction, higher growth. It leads to leading market positions, and it drives premium margins. Let's go to Serve. We have millions of vehicles and equipment in the installed base in use every day. All you have to do is walk 1 or 2 blocks from where we are in New York City, from Wall Street, and you will find our equipment right now in use. We intend for these vehicles, these millions of vehicles to operate the way they were designed to operate from day 1, all the way through their life cycle and technology, is a big part of this. New values being created with our intelligent connected products, value that supports operator safety supports productivity as well as fleet operators throughout the entire life cycle of the product. We use IoT and advanced analytics to provide enhanced life cycle productivity and safety to the vehicles and machines. This is value -- when you look at it, this is value that wasn't even conceivable just a couple of years ago. Serve is about life cycle services and as it grows, it becomes a bigger driver of profitability and a bigger driver of countercyclicality. So I've also mentioned -- we'll go to Advance. I've also mentioned today, our entry into new categories, new markets and new geographies. That's what we mean when we say Advance. We'll continue to expand into new categories, both organically and inorganically. We'll do it when we see the opportunity to use our technology and capability to provide far better solutions than are being offered today, especially when we see that category as a secular growth market. Last mile delivery is a great example of this. We saw substandard solutions in this segment and therefore, develop a solution that the entire last mile delivery segment has not seen before. Pratt Miller is an acquisition that we made. It gave us the capability to enter new segments that are prioritized by the Department of Defense. New geographies will also represent opportunities for growth, and you'll see us advance here as well. So let me go a little closer into our business segments to show how we're leveraging some of these growth drivers in our businesses. Let's start with access equipment. We are the leader designing, manufacturing and delivering access equipment and material handling equipment globally. It starts with our ability to leverage very strong market dynamics, and it's accelerated by new category entry and new market entry. Of course, safety and productivity and innovations are the lifeblood of what we do, and it is why we are the global leader in access equipment. And technology is common across all of our segments. Jay is going to elaborate on the technology drivers. So let's start with a little closer view of the Access segment and what the market looks like. Well, the chart on the left shows aerial work platform fleet age. Healthy fleet age in the channels in the green, that's about an average of 40 to 50 months. Current fleet age is at 60 months. This is the highest average fleet age we have ever seen. Economics turn upside down for the channel when the fleet gets too old. And in addition to that, end users also prefer newer machines versus older equipment. So there's an urgency now to renew the fleet and that renewal of the fleet will take several years. This urgency by the way, is reflected in our current $4 billion backlog at Access Equipment. It's not just fleet age, though, that's creating positive market dynamics, you check out the right-hand side of this chart, nonresidential construction forecasts are also favorable, as is the Architectural Billings Index, or the ABI. In the ABI, anything over 50 is strong, and that's a reflection of future construction activity. You can see the quote on this chart from Brendan Horgan of Sunbelt Rentals. He's the CEO there, and that there's an enormous number of projects currently in the pipeline. So one great advantage that we have, with these market dynamics that you see on this chart, is that we've got the operating footprint, the investment and the capability to deliver. So we'll also enter new categories and new use cases, new adjacent market segments in the Access Equipment world. This provides growth opportunity. In the fall of 2021, we entered the agriculture industry with the introduction of the AG925 telehandler. This is a new adjacency for us. You see electrified product in the center, electrified product expands use cases into clean interior spaces, where aerial work platforms have not been able to be used previously. Expansion outside of our primary markets of the U.S. and Europe also support growth as recovery will continue as the world emerges from the global pandemic. So I talked about innovation being the lifeblood of our business at access, and we are certainly the leader because of our innovation over the years. Let's look at some of our recent innovations and how that's going to drive growth. Latter accidents, look at the left-hand picture of this chart, latter accidents are one of the biggest reasons for lost time injuries and high workmen's comp costs in the United States. JLG's low-level access, we call it Ecolift series, is designed to replace ladders, making working -- this makes working at low level height safer. And thus, reduces this significant problem across many industries today. A big drain on productivity at construction sites is the need to descend and re-shim an aerial work platform chassis every time it's moved. Our self-leveling booms automatically level the chassis when it's moved, driving huge gains in productivity on the construction site because an operator does not need to descend with this equipment to move the machine. Of course, our SkySense technology is also a big innovation. It's got object detection sensors. It provides operators an added level of awareness of their surroundings, which increases the protection of people, but also a property. And digital connectivity continues to advance, and drive productivity and safety for operators and fleet owners. Let's go to Defense. We're the global leader in the design production and sustainment, a best-in-class, purpose-built vehicles and mobility systems for our military and our government customers. We have a strong foundation here. We are the premier provider to the U.S. Army and U.S. Marine Corps for their light, medium and heavy payload vehicles. We're successfully moving our capabilities to the Army and Department of Defense funding priorities, and we are winning programs here. Our success in last mile delivery is yet another major growth frontier. So our -- let's talk core tactical wheeled vehicle capability that represents this foundation. We've got a huge contract extension coming up this year with what we call the JLTV recompete. It's an additional 16,600 vehicles as well as 10,000 trailers that represents $7 billion. This will take the program into the 2030s. But the versatility of the JLTV also presents opportunities for new use cases. Mobility and targeted strikes, for example, you see that on this page, mobile communications platforms, and there are many other derivatives of the vehicle that continue to be developed. Finally, we supply many Eastern European countries today. And it's pretty clear with recent events in Europe that they highlight the need for prioritizing defense vehicles and overall defense capabilities. So driving adjacent growth, we have to win in priority segments for the Department of Defense and the U.S. Army. So we're leveraging our innovation, strategic acquisitions and leveraging partnerships to capture adjacent market opportunities, which drives future growth. We acquired Pratt Miller about 1.5 years ago. It's a technology company and we acquired it to enhance our ability to succeed primarily in these defense adjacencies. The Pratt Miller acquisition was a key reason that we won the Stryker MCWS program that you see on the left side of this page. And we're really only getting started with the combined capabilities of Oshkosh and Pratt Miller as we go forward. The optionally manned fighting vehicle that you see on this page, it's also referred to as the OMFV, this has been developed with industry partners, and it's disrupting the combat vehicle market as well as we showcase our capabilities in a completely new category of vehicles for Oshkosh. This page highlights some of these adjacent programs. There is lots of growth on this new frontier. Finally, in defense, we have the United States Postal Service that represents the largest fleet of delivery vehicles in the country, perhaps the largest fleet of delivery vehicles in the world. We saw an opportunity to design and develop a last-mile delivery vehicle that is far superior to anything in the last-mile delivery market today. Yes, it's interesting that it's electric, but it is so much more than that as well. It is designed and purpose-built for maximum productivity, maximum safety for both the driver and the people in our communities that may be around the vehicle. We will transform North America's largest fleet of last-mile delivery vehicles over the next 10 years. And it is my belief that we will electrify the USPS fleet faster than any other fleet of last-mile delivery vehicles in the country. In March of 2022, we received our first order of 50,000 vehicles. 20% of these vehicles will be battery electric, the total value of the first order, $3 billion, not too bad for a first order. USPS is our first step in last-mile delivery. This is a secular growth market segment, and we do intend to be a big player in this market. Moving on to Fire & Emergency. Pierce is the cornerstone. It's the premier manufacturer of fire trucks, allowing firefighters to protect communities safely and efficiently. Pierce is the envy of the fire and emergency industry. Here's an overview of the growth dynamics in fire and emergency. Some of these are very similar to Access. It starts with strong fundamental market dynamics, and we're moving into new markets and new adjacencies. But our strong dealer network is a competitive advantage, and it is also a driver of share and growth. The market dynamics, strong for our core market. So there has been underinvestment in the firetruck fleet across the country really, since the Great Recession. Going in -- you go back to the Great Recession, going into the Great Recession, the annual market size for municipal firetrucks is about 5,500 units. That market drops to less than 4,000 units coming out of the Great Recession and really, has stayed down until just recently. And we expect the market to grow and continue to grow as municipalities are now having the funding to prioritize firetruck fleet upgrades. So underpinning this is healthy municipal budgets. The chart on this page shows change in property tax revenue. Property taxes are the biggest input to municipal budgets. So we're seeing this reflected in a growing market now. Orders are up, backlog is building, and we are investing in capacity to support that growth. So let's talk new markets. They represent exciting growth opportunities, both in new categories and in new geographies. Recently, we made an investment in Boise Mobile, which is a leader in Wildland firetrucks. As a result of climate change, this market segment is growing. So we saw the opportunity to advance into this segment through an investment in Boise Mobile. Our Volterra electric airport rescue and firefighting vehicle represents a unique ability to capture more market around the world because the product combines better performance with the emissions benefit of electric. So the electric Volterra ARFF vehicle is creating significant interest around the world, and we're actually taking it across the ocean for demonstration at many European airports this summer. The dealer network at Pierce. This is a significant advantage for us. We have the best dealers across the country, which drive customer loyalty and drive market share. Service is the critical element. There's a certain density of service centers that's required to really maximize customer satisfaction and thus maximize market share. And our dealers are the best in the industry. They have the best service networks, and they've even been making more investment in service centers. As service centers grow, market share grows with it. We have 11 new service centers in just the past 2 years, and that's the past 2 years that were during the pandemic. Finally, our Commercial segment. We're the leader in refuse and recycling collection, concrete placement and service vehicles. The growth drivers, core market dynamics here are also strong across the vocational segments in our Commercial business. So we've also been driving simplification into everything we do, and that is moving the operating margin needle. Innovations will set up or they will set us apart as productivity and safety leaders from autonomy to electrification to intelligent connected products, and this drives strong margins in this segment. So what's the market dynamics for these Commercial businesses that we have? Well, residential construction is the primary driver of the market and the forecast is strong through 2027. This is highly correlated with demand for both refuse collection vehicles and concrete placement vehicles. But nonresidential construction, as we saw in the access slide, is also another -- is also a strong indicator and it's a strong indicator for this market. And as we discussed, the forecast is strong here as well. The infrastructure investment in Jobs Act will drive another $110 billion in additional infrastructure spending over just the next 5 years. That's a healthy indicator of this market. So we're positioned with technological capability to deliver both step change and disruptive innovations. It will be centered around sustainability, safety and productivity. In RCV, a refuse collection vehicle drives through the streets of our communities nearly every day. It should be silent, it should be pollution-free, it should be safe around the vehicle for the driver and the people in our communities and productive, of course, for the operator and the fleet owner. We deliver innovations to bring this to life with electrification, autonomy and intelligent connected products. And we're at the forefront of these applications in this segment. Simplification methodology is really, really important as we have comprehensive product lines in this business, and they go from value product all the way to premium product. So how we operate efficiently to sell, manufacture and fulfill is critical to our success. We've been rolling out simplification in our Commercial segment, and it is reflected in steady operating margin improvement. We follow 80:20 principles to drive our focus. So the sales process drives customers to the 20% of products that drive 80% of the value. Manufacturing processes do the same. Over the past couple of years, we deployed a focused factory concept where we moved our concrete placement vehicles to London, Ontario, and we focused our Dodge Center Minnesota operations on refuse collection vehicles. This set the stage for further simplification. We've just finished the investment in a high flow manufacturing line. It's state-of-the-art for this industry and it's driving higher quality, higher efficiency, especially with that 20% of the product that drives 80% of the value. So let me now move from our segments to a couple of minutes on M&A strategy. We've reengaged an inorganic investment over just the past couple of years. So why? Well, of course, it's an important component of our growth strategy. We see ourselves as programmatic acquirers. It's kind of bolt-on type acquisitions, if you will. Our M&A focus is really centered around 3 areas. Number one is technology build-out. We have great technological capability at Oshkosh but continuing to add to it accelerates our innovation process. Category expansion is number two. We will invest in categories, where we believe we can use our technology and our capability to deliver solutions that are far better than what's being offered today. We did this, for example, in last mile delivery organically. And then finally, life cycle businesses. We'll expand our ability to participate in the critical life cycle marketplace, enhancing our ability to support the installed base of vehicles and machines. This includes, of course, our ability to provide effective intelligent connected product solutions through analytics and software engineering. We actually have been active in M&A in the past couple of years. This chart outlines investments and acquisitions we've made in the last couple of years. Pratt Miller was really the first. It was about a little 1.5 years or so ago, and it drove both technology and category expansion, and will continue to do so. Boise Mobile brings us into the secular growth segment of Wildland fires, and most recently, investments in robotic research and the acquisition of CartSeeker, bring us autonomous capability additions. You'll soon see CartSeeker deployed on RCVs refuse collection vehicles that bring autonomous solutions, driving far better productivity to the driver and the service provider. I want to wrap up my comments talking a little bit about our culture and who we are. Putting people first starts with Oshkosh team members. Everyone knows that they matter in fulfilling our purpose. We provide meaningful work. It's aligned with our powerful purpose, it's in an environment that fosters collaboration inclusion and creativity. We're united by a common purpose. We make a difference in people's lives. It's our why and it matters a lot to all of us. We have so many people, so many people, there are families of users of our equipment that come to us to express the appreciation for saving a family member's life. This happens a lot in our defense business, for example. Maybe it's their child, their spouse, brother or sister, we all beam with pride when that happens. So whether it's how we treat each other, our commitment to exceeding the needs of customers, keeping workers safe, protecting those who protect us or even keeping our communities clean, everything we do is intended to enhance the quality of life. We're proud to do business the right way. We're, of course, honored to receive more than our fair share of industry awards recognizing efforts and accomplishments. In just the past year, we've been recognized in areas highlighting sustainability ethics, diversity, equity and inclusion. And this is an additional -- in addition to several others you see us get, like most recently, the Fortune's Most Admired Companies List. We embrace environmental, social and governance goals for the right reasons. We believe it makes us a more effective and responsible company. Several years ago, we partnered in a virtual power purchase from a wind farm in Oklahoma. It's essentially energy credits that allow us to reduce our carbon footprint. This wind farm came online this year, and we're benefiting from both environmental and economic perspectives. Since 2014, we've reduced our greenhouse gas emissions intensity and normalized energy use by over 30%. That means we achieved our 2024 goal of a 25% reduction, 3 years ahead of schedule. And we've also diverted over 84% of waste from the landfill in 2021. That gets us closer to our goal of 90% by 2024. And I'm proud to announce that earlier this week, just earlier this week, we formalized our commitment to the science-based targets initiative, SBTi, where we'll set emission reduction targets aligned with the Paris Agreement on climate change. We're putting our money where our mouth is. Our executive leadership team actually has now a portion of incentive compensation tied to both sustainability and diversity, equity and inclusion goals as we strive to make improvement in these critical areas. We are making progress. As I wrap up the formal portion of my comments this morning, I want to reinforce the drivers of our company's long-term success. Of course, it all starts with people. As with every organization, people always make the difference. And we expect to take advantage of numerous tailwinds in the markets where we compete. We'll also move into new markets, new businesses like clean room applications, combat vehicles, Wildland firefighting and last-mile delivery, just to name a few of them. We've begun our journey in programmatic M&A, and that will accelerate our growth rate as we leverage inorganic investments. We expect these investments to pay off with strong operating results, driving the targets that you're seeing today. I'm now going to turn it over to the newest member of our Oshkosh leadership team to talk about innovation and technology leadership. Please welcome Jay Iyengar, Chief Technology Officer and Chief Strategic Sourcing Officer of Oshkosh Corporation.

John Thank you. Welcome. Thank you for joining us today. I'm delighted to be here to share our innovation story with you. A quick introduction to myself, I come to Oshkosh with a diverse industrial technology background. I am very excited to be a part of Oshkosh. I really connect with the purpose of the company, the impact our products make on those who rely on them every day, and most importantly, I'm excited about the technology and the innovation spirit of the company. I'm confident you will share my enthusiasm as I go through how we innovate with intent. Let's get started. Here are my 4 key messages for today. One, we are a high-technology industrial company. We've always been pioneers in customer-centric innovation. Starting in 1917, with a breakthrough drivetrain that gave people the mobility, the confidence and the courage to go places that they never thought they would. And that proud innovation spirit continues even today. Second, we are a trusted partner to our customers across diverse end markets. And we share technology and learnings across our applications. So this customer intimacy and our ability to share technology makes us very unique. It has positioned us to be a leader in delivering purpose-built solutions. Third, we continue to advance our R&D approach. We've built an innovation ecosystem of partners, which provides us with access to a broad set of new technologies. And fourth, we are leading digital transformation of the industry. This transformation applies to our products and services as well as our business operations, manufacturing and supply chain. We do all of this while keeping customer at the center. Technology is there to serve a purpose, it is there to solve challenges on the customer space today and tomorrow. I will share some details on how we do all of this, starting with our overall R&D strategy. Our technology and innovation strategic framework is comprised of 4 tenets or 4 building blocks. It starts with our world-class engineering capabilities, including a highly-talented team of engineers. It's further augmented with an open innovation framework, giving us access to the best new technologies and complementary capabilities. Next is being purposeful about choosing the right technology team that matters. In other words, knowing where to place our bets. The last part of this strategy is very important, something we do really well, which is collaborating closely with the customers to help drive adoption. We engage with them early in the process to understand their needs and work closely with them to validate solutions. So this framework gives us the ability to Innovate, Serve and Advance effectively and efficiently. Next, I'm going to double-click on components of this framework, starting with our world-class engineering capabilities. Being a technology company, our core strength starts with our people, our engineering horsepower. We have incredible technical talent with expertise across key disciplines such as advanced modeling and simulation, systems engineering, software controls, IoT, electronics, material sciences, data sciences and many more. Coming in fresh, I'm personally impressed by our technical team, their passion and the culture of innovation that exists at Oshkosh. I really believe this is one of the core strengths of the company. Let me show that to you in a short video. [Presentation]

You've just seen, we have comprehensive end-to-end product development capabilities from requirements management, to digital engineering to design and product validation and life cycle management. This core strength enables us to get the designs right the first time, which improves speed to market. Another indicator of our innovation strength is our rich intellectual property portfolio or our patent portfolio. While generating valuable patents in key technical areas, our rate of innovation continues to increase. In the last 7 years, our overall annual patent filings have increased 4x -- by 4x and almost 8x in key areas such as electrification. An important point to note that our patents are applied directly on the products, as you see on the slide, our patents just don't exist on paper. They are helping create as differentiated products. The second tenet of the strategy that I discussed earlier is accelerating impact with open innovation. We don't feel the need to innovate just within the four walls of the company. Great ideas can come from anywhere. We've built an ecosystem of technology partners such as start-up companies, universities, suppliers and customers to leverage their strength and extend our own R&D reach. Our tech road maps, our technology road maps inform us as to what to look for and who to partner with. And you see a sample of our partners represented on this slide. As an example, Carnegie Mellon University and Robotic Research are premier research institutions in the area of autonomy. In fact, we are establishing an R&D hub at Carnegie Mellon. We've also launched our own corporate venture capital to serve as a beacon for start-ups to engage with us, and we are actively scouting for new technologies and ideas. By combining our internal capabilities with this open innovation approach, we're able to reduce the time required to bring new disruptive technologies to the market. The last 2 building blocks of our strategy are about customer collaboration and focusing on the right customer value technologies. One strength building to the DNA of how we operate is the relationships we develop with those who rely on our products to do their digital jobs every day. We work very closely with them to understand their pain points and challenges. For instance, firefighters need their vehicles to be ready, fully capable and ready to go at the instant they receive a phone call. War fighters on dangerous complex missions, rely on our vehicles for mobility and protection. Construction operators working at height need to know and feel safe. Environmental and mail delivery workers who spend all day in our vehicles, which is their office, need to be comfortable and productive. TCO or the total cost of ownership is important across the board. We distill down these set of requirements to select the technology teams that help solve these challenges. We've chosen 5 technology teams, they're electrification, autonomy and active safety, intelligent products, advanced analytics and digital manufacturing. And as John indicated, these are also our growth drivers, and that is where we're placing our bets. So let me show you a few details of these focus areas, starting with electrification. Electrification brings significant value across all our applications. Silent mobility and export power are important to our military application. Enhanced acceleration is important for our trucks. Noise reduction is important for our construction and refuse applications. Fuel savings and emissions reduction are important across the board. With this in mind, we are investing over $300 million in electrification through 2025. I spoke earlier about sharing technology across our applications, one of the ways to accomplish that is with our technology stack that you see on this slide. The technology stack covers end-to-end value chain. What I mean by that is including vehicle features and supporting elements such as charging infrastructure, cloud infrastructure, fleet management and other value-added services. For our end market applications, we purpose design the architecture and the solution that provides the right customer value from a hybrid to a plug-in hybrid to a full electric vehicle. We can do all of this because we have deep expertise in electrification starting in the mid-90s with the JLG electric Scissor lift. Through the 2000s, our work with the military has enabled us to build a strong and capable team. This team delivered the LCTV, the light combat tactical vehicle, which was the first diesel electric vehicle to complete the Baja 1000 race in 2010. This deep experience continues. We are now developing the latest generation of technologies, and we will continue to innovate further. We are launching electrified products across every one of our end markets, and I will share a few examples starting with Fire & Emergency. Pierce Volterra is the first electric firetruck in operation in North America. It's currently in service at the Madison, Wisconsin fire department, and we are ready to deploy a second vehicle in Portland, Oregon. This technology is based on Oshkosh's patented electric transmission design, which provides all electric operations for full shift, while providing combustion engine power as a backup for extended missions. This purpose-built vehicle was developed in close collaboration with our customers. It was paramount for firefighters that we preserve the vehicle configuration and add overall performance to ensure that they could do their critical job without impacting their own operational procedures. Also, many of our own engineers serve as volunteer firefighters. So we don't have to go too far to get the customer feedback on our designs. After over 1,500 response calls -- our 1,500 emergency response calls and with great customer feedback, you see here, we are on track to launch this vehicle to full production in 2023. Next, looking at defense. eJLTV is the first ever silent hybrid drive -- hybrid electric joint light tactical vehicle. It offers the same level of performance and protection of the base JLTV with the addition of silent drive, extended silent watch, increased export power to support and protect the war fighters on their mission. As you can imagine, the charging infrastructure is a challenge in this application. The eJLTV fully charges the advanced lithium-ion battery within 30 minutes during operation while in use, which completely eliminates the need for a charging infrastructure. So we are truly honored to receive such resounding endorsement from the U.S. Army, a testimonial to our electrification capabilities. JLG's DaVinci is the industry's first all-electric zero-emission scissor lift. This innovation has been recognized in the industry with multiple awards. Scissor lifts are used for indoor and outdoor projects that require up and down mobility. DaVinci employs electric actuators for lift and steer, which eliminates the need for hydraulic system completely, which means no chance of an oil leak. This helps extend the use of scissor lifts in clean rooms, such as microelectronic fabrication facilities, surgical theaters in hospitals, et cetera, and many more. Energy also is recovered or regenerated during the platform descent and braking functions to charge the battery, resulting in overall 70% lower power consumption. This vehicle can also be controlled with a smart -- with an app on the smartphone for easy loading and unloading. All of this leads to improved productivity and total cost of ownership. Boise, Idaho welcomed the very first McNeilus all-electric recycling truck to their fleet in 2021. This application is one of the most attractive for an all-electric vehicle because they usually have fixed routes, and they return to the base every night for charging. The frequent start-stop cycles are ideal for regenerative energy capture. This refuse body is a patented modular design, built with integrated ePTO, power takeoff unit, which can interface with any electric chassis. We use our proprietary software control system called Code Controls, which also provides real-time data from hydraulics and electrical system for better diagnostics. Nearly 1 year of service in Boise with Republic Services, zero-downtime and very positive customer feedback. Cobalt is the first battery electric concrete mix that are demonstrated in the United States. This vehicle produces zero emissions, does not have a combustion engine, and all the vehicle driving and concrete mixing is powered by the battery energy and electric motors. It achieved the same level of performance as a conventional mixer, including gradability, acceleration, top speed and low carrying capacity. We've extensively tested this product with multiple customers, and the feedback has been very positive, especially around jobs like noise reduction and overall performance. John earlier talked about customer empathy. He says that all the time, empathizes everyday hero. I want to share a quick anecdote. Our engineers are very involved with the customers, they spend time on the job sites working hand to hand to test new technologies. And that was the case here also with the Cobalt. The impact this product made at the job site was a moving experience for our engineers. The vehicle was so quiet that the workers could actually hear one another, talk to each other and communicate with each other. This reduction in noise and the added safety at the construction site really hit home for our engineers. Oshkosh USPS Next-Gen Delivery Vehicle is a purpose-built battery electric vehicle, customized for the needs of the mail carriers. NGDV is a connected intelligent vehicle with integrated electric axles and the battery size for an all-day route capability. The vehicle provides enhanced driver comfort with improved ergonomics and enables mail carriers to do their work with ease. Additionally, the customers benefit from silent drive, zero emissions and reduced maintenance. We are very excited about the impact this product will have on every household in the country. As you can see from these examples, electrification has compelling value across our end markets, and this adoption will only continue to grow. In keeping up with our pioneering spirit. We are the first to launch electrification in all of our end markets. Now I'm going to switch gears and talk about the second key technology focus area, autonomy and active safety. Similar to the auto industry, we classify levels of autonomy with increased automation, starting with Level 1 and 2 active safety, driver assist systems all the way up to Level 5, which is fully autonomous driverless solutions. Across all our applications, this technology provides benefit. This includes advanced driver safety simplification, and automation of complex vehicle operations, enhanced productivity and a solution to labor challenges. We expect to invest over $100 million in this area through 2025. Similar to electrification, our experience in autonomy spans multiple decades. We have been developing Level 5 driverless autonomous solutions for tactical vehicles in the defense applications since the early 2000s, long before some of the auto industry tech startups. We worked with the government agency such as DARPA and others to design, develop and test autonomous solutions targeting off-road applications. Today, our solutions are a result of multiple generation of development, leveraging the latest advancements with proven reliability backed by tens of thousands of miles of field testing. This experience, supported by continued investment and commitment, has established Oshkosh as a leader in the field of autonomy. I'll share a few examples across our end markets, starting with Level 2 active safety to Level 5 driverless autonomy. SkyGuard is one of many Oshkosh safety innovations. It comes standard on all JLG boom lifts. Boom lifts are the highest reaching elevated work platforms, which allows the operator to be raised and moved horizontally and vertically. They're used in maintenance and construction projects in often constricted areas. SkyGuard uses sensors to detect objects outside the operator platform. if an object or an obstruction is encountered, the system triggers the machine to stop immediately and commands auto retract or reverse its previous direction. This is our proprietary technology. The system knows exactly how the basket was moving so that it can reverse appropriately. It is what we call as the anti-entrapment technology that keeps the operator safe and reduces accidents. We talked about electrification of the USPS vehicle earlier. And now I want to highlight the active safety technology this vehicle has. The new vehicle comes with a forward collision warning system, automatic forward and reverse emergency brake activation, a 360 camera providing full visibility along with a backup camera, low-speed radar as well as front and rear bumper sensors. All of the active safety technology makes this equivalent to today's fully loaded passenger vehicle. This is a big change from a current postal vehicle that does not even have air conditioning. Another exciting product, which provides increased level of automation is JLG's self-leveling boom lift. This unique first-to-market product provides significant benefit in outdoor job sites with uneven terrain, uneven ground. Usually, in these type of job sites, there is a prep phase, which involves grading and clipping before a regular boom lift can be brought on site, deployed on site to operate. This step is not necessary with this breakthrough product. When the vehicle is transporting undulating terrains, the self-leveling chassis keeps the operator platform, perfectly horizontal, improving operator comfort, control and reduces fatigue. This also allows an operator to drive the machine while at height even on an uneven ground, thereby maximizing job site productivity. This self-leveling innovation has won several industry awards, including being recognized the Product of the Year by IAPA, as you see on the slide. We are applying autonomy to our McNeilus diffuse vehicles with CartSeeker technology. CartSeeker's patented AI, artificial intelligence cart recognition technology identifies and locate a curbside waste cart and fully automates the operation of the trucks robotic lift arm without any manual joystick control. Our proprietary technology identifies that diffuse container versus other objects that may be on the curbside such as mailbox or a bicycle. This technology provides significant customer value, improves the pickup efficiency, safety and reduces fatigue. This is a great example of a strategic acquisition that has allowed us to quickly integrate and launch this advanced automation. Next is an example of a Level 5 driverless autonomy, which uses full technology stack that I shared earlier. As cautious Defense Expedient Leader Follower, ExLF, enables a series of unmanned vehicles to follow a single manned vehicle, a single lead manned vehicle. This leader-follower technology helps them move personnel from at-risk situations in often-targeted convoy routes. The system can also operate in harsh dusty environment with no lane markings and can also function when the GPS is not available. The technology is also flexible. In addition to the leader-follower mode, there are additional modes such as manned driver assist mode, a mode to follow a predefined waypoint autonomously and remote control operation. This development is a partnership with the U.S. Military and Robotic Research. It is the largest autonomous fleet in the military today, with over 70 vehicles in real-world operation. Autonomy is a growing trend, and we are in a strong position to lead this transformation. Last, but certainly not least, let's talk about intelligent products and advanced data analytics. Our products are inherently intelligent with embedded controls software and electronics. As an example, the ARFF truck has about 30 electronic control units on it. Using telematics, they collect data from connected products around the world. Leveraging our domain and product knowledge, we apply advanced analytics to provide actionable insights for our customers. We are developing and scaling new digital capabilities and have established a cloud center for excellence with talented engineers and data scientists. We are planning to invest over $100 million through 2025 in this technology area. This technology has tremendous benefits in driving productivity and improving TCO, which is demonstrated across all our applications. Let me show you a few examples. JLG led the access industry with intelligent products with the introduction of ClearSky telematics, which provides our customers with valuable insights such as machine location and vehicle diagnostics. We also tailored the solution to meet specific customer needs. As an example, we partner with Sunbelt Rentals to customize the ClearSky solution for their enhanced fleet management. One such use case is the advanced battery monitoring feature, which help them avoid 70% of their battery charger replacements. We continue to add new features and functions with additional data-driven insights and ClearSky has helped increase flight utilization and uptime for our customers. McNeilus ClearSky solution spans across both refuse and mixer applications, using telematics in combination with machine learning, we provide targeted insights to our customers to maximize their fleet performance. For instance, in refuse vehicles, the fleet operators can see in real time the truck utilization, the vehicle speed, number of times the vehicles back up, fuel usage, fault code, et cetera. In the concrete mixers, the fleet operators can monitor the start and end of a concrete core. This insight provides them with quantifiable savings. All of these features were developed in close collaboration with our customers, another example of Oshkosh's customer-centric innovation culture. The next solution used in the defense JLTV, is, an innovative approach to vehicle maintenance, known as condition-based maintenance or CBM. In today's vehicles, even on your own personal vehicles, the maintenance schedules are usually based on fixed mileage or time without any feedback loop of how the vehicle is really being used. This often leads to unnecessary maintenance expenses. CBM uses sensors, telematics and advanced analytics to estimate the useful life of critical components to recommend maintenance only as needed and hence, reduce the overall maintenance cost. For instance, using oil quality sensors and machine learning algorithm, CBM helped reduce the standard maintenance cost by over 40%. Another benefit of CBM is it helps prevent failures of critical components. It predicts the failures of critical components such as brake pads before they actually happen. This helps the customer be proactive about replacing them. CBM lowers life cycle costs, increase uptime and ensures that the vehicle is ready for the mission. We have CBM kits deployed on hundreds of vehicles today. We plan to launch this technology across all our applications. To summarize, electrification, intelligent products, autonomy and active safety will deliver differentiated products across all our end markets and in new markets. We are on the path to lead the industry in launching these technologies across our applications in the next few years. We are at a point of inflection. We've put everything in place to deploy technologies in the markets that we serve today and tomorrow faster and more efficiently. Of course, investments are critical to delivering everything that I talked about today. We are increasing investments in innovation. We will be investing about 40% more in the next 4 years compared to the previous 4 years. To give you a feel for it, we'll be investing approximately $1.8 billion in innovation through 2025. And around 40% of that will be in the technology areas that I just discussed earlier. One of the metrics of technology-enabled growth is the vitality index, which is a measure of revenue from new products as a percent of the total revenue. We expect the VI to grow by 600 basis points in the same time period. As I close, I want to highlight that our purpose at Oshkosh is to make a difference in people's lives. We are passionate about technology and innovation because of who we serve. Today, I gave you an inside look into our innovation strategy, our technology-focused areas and how we are driving speed to market. The time is right. Our customers are ready and we will deliver innovation that serves everyday hero, advances industries and delivers growth. This is how we innovate with intent. It's an exciting time for Oshkosh. Thank you.

All right. I've got 11:15. We're going to take a 10-minute break. And if you need to do a bio break out the doors and to the right, and we'll reconvene at 11:25 Eastern Time. Thanks, everyone. [Break]

Okay. We'll get started here. Good morning, everyone. I'm very pleased to share our financial outlook through 2025 with all of you as well as our capital allocation priorities looking forward. Our outlook demonstrates both the strength of our business portfolio as well as the financial flexibility we have over the next several years to drive accelerated growth. Today, I want you all to leave with 3 key takeaways. First, we have an outstanding portfolio of businesses and all these businesses are going to be meaningful contributors to our accelerated growth. Second, we expect to deliver strong financial performance with adjusted EPS doubling from 2022 to 2025. And third, we have a disciplined capital allocation approach to fuel our robust growth objectives while driving strong shareholder returns. So let's jump right into our consolidated outlook. As you can see, we expect strong financial performance through 2025. Our outlook includes sales of $10 billion to $11 billion of revenue, a consolidated double-digit operating income margin, and again, we expect to double EPS compared to 2022, with an impressive $11 to $13 per share outlook. And we expect to deliver these strong financial results, while delivering top quartile returns on invested capital of 20% to 23%. And keep in mind, this outlook is only organic growth. As John and I have consistently shared we plan to be programmatic acquirers, which should provide further upside opportunity over the next several years. So now let's take a look at consolidated revenues and operating margins over the past few years then looking forward to 2025. Recall that 2019 represents our prior peak, we delivered sales of just under $8.3 billion with a consolidated adjusted operating margin of 9%. In 2020 and into 2021, revenue and operating margins were clearly impacted by the COVID-19 pandemic. By mid-2021, strong demand returned in our businesses as well as many other businesses in the economy. Well, this sharp rebound triggered significant commodity inflation as well as supply chain disruptions. Now in 2022, companies around the globe are facing new pressures following Russia's invasion of the Ukraine as well as COVID lockdowns in China. But keep in mind, while these world events are creating some short-term headwinds, these challenges will pass, and our long-term outlook is very strong, and here's why. We've consistently taken the right actions as we've navigated through the past 2 years. We've expanded production capacity. We've optimized our operations, and we've improved our supply chain resiliency. And most importantly, we remain disciplined and agile with our pricing approach. So if you combine these actions, there are strong market fundamentals and adjacent market opportunities that John talked about with the market-leading innovation that Jay talked about, we're confident in our ability to deliver strong revenue growth at higher margins over the next several years. Focusing on revenue first. We expect to grow revenues from approximately $8.35 billion at the midpoint in 2022 to $10-plus billion in 2025, representing a compound annual growth rate of 6.2% at the low end to nearly 10% at the high end. And we expect that this revenue growth will come at accretive margins with a 380 to 450 basis point improvement in our margins. John and I have consistently shared our view that Oshkosh has the opportunity to be a double-digit operating margin performer, and we believe we're well on the path to deliver double-digit margins by 2025. Moving to earnings per share. Again, 2019 was the prior cycle peak. Their strong revenue growth and operating margin growth, we expect to approximately double our 2022 EPS outlook of $5 to $6 per share to a range of $11 to $13 per share in 2025. This is a record EPS level for Oshkosh, equating to a nearly 30% compound annual growth rate at the midpoint. And keep in mind that our EPS outlook assumes a largely flat share count compared to our 2022 assumptions, so share repurchase activity provides further upside as does programmatic M&A. I'll talk more about our capital allocation priorities in a little while. So now I'm going to transition to our segment outlook and share some other key details about 2025. You see a snapshot of our segment expectations on the left side of the chart. Back to my key takeaways. You see that each one of the segments is a meaningful contributor to our strong expectations for 2025, and I'll reinforce the individual segment contributions on the next few slides. Moving to the right side, we expect CapEx to average about $250 million per year through 2025. You'll likely recall that we expect higher CapEx in 2022 and 2023 with the NGDV ramp-up, as well as other capacity expansion projects throughout our businesses, including NGDV as well as capacity expansion at Access and F&E. With strong earnings growth, we expect strong free cash flow to follow suit with $750 million to $850 million of free cash flow by 2025. And as I mentioned earlier, we're conservatively assuming no change in our average share count from current levels, we're also assuming a flattish tax rate of about 23%, consistent with 2022. So now let's move to the segments. We'll start with Access. We talked about all the significant demand for Access Equipment with elevated fleet ages, expanded use cases and high utilization rates throughout the market. And this demand is only increasing with the market-leading innovation that Jay talked about earlier. Similar to Oshkosh as a whole, 2019 represented the prior cycle peak. We expect that 2022 revenues could be on par with 2019 levels. But as we talked about on our earnings call last week, that's going to highly depend upon supply chain performance over the remainder of the year. Also, as we have discussed over the past several quarters, margins are temporarily down due to current price cost headwinds, but these headwinds are temporary and will normalize over time. In fact, we expect meaningful progress in the second half of 2022, moving back to more typical margins. Looking at 2025, we believe Access Equipment is well positioned to achieve $5 billion in revenues, equating to a robust high single-digit compound annual growth rate. This represents record level performance for Access Equipment. I also want to point out that we expect to exceed prior peak margins with an operating margin of approximately 13% at the midpoint. Shifting to Defense. We've said many times over the past 2 years that revenue will be down in the short term due to lower DoD tactical wheeled vehicle budgets. But Defense is a growth business with exciting opportunities in new adjacencies, like delivery vehicles with our recent NGDV contract win and combat vehicles with our recent Stryker MCWS win last year. In fact, by 2025, we expect that NGDV will be approximately 25% to 30% of defense revenues, while contributing double-digit operating income margins. Overall, we see Defense growing to nearly $3 billion of revenues with a double-digit operating income margin by 2025. And we believe this is just the beginning of the growth opportunities that we had in defense. We see significant opportunities in the broader delivery vehicle space, as John talked about. And of course, we see more opportunities to grow in other defense adjacencies like OMFV and robotic combat vehicles among many others. Moving to the Fire & Emergency segment. This segment has been an outstanding performer over the past several years, showing margin resiliency in the turbulent markets we face. I had the privilege to be a part of the Fire & Emergency segment as we drove the significant margin growth over the past decade. Coming out of the Great Recession, you may recall that the Fire & Emergency segment was a low single-digit operating margin performer. We leveraged our simplification approach, really 80/20 principles, combined with consistent launches of market-leading innovation to transform the margin profile of this segment. Our simplification approach touched every aspect of the business, from the sales process to our engineering efforts to our manufacturing approach with dedicated manufacturing lines organized by product type as well as content level. Our innovation and strong dealer network have enabled us to grow our market share over time and resulted in the record backlogs you've consistently seen in this segment over the past few years. And we're really looking forward to the additional capacity coming online beginning later this year. We see the opportunity to deliver meaningful growth in this segment to north of $1.5 billion of revenues at a high single-digit to low double-digit compounded annual growth rate, and this is all while growing operating margins to the mid-teens. Now let's wrap up our segment discussion with Commercial. I'm truly excited about the progress we've seen at Commercial. And I see them very much on the same path of simplification and innovation that transform the margin performance at Fire & Emergency over the past decade. We see robust growth drivers in Commercial, particularly in the environmental services space. We see many opportunities for innovation to improve the productivity and total cost of ownership for our customers. We believe we're well positioned to deliver solid mid-single-digit sales growth and are well on track to deliver double-digit operating margins in this segment, while continuing to deploy meaningful capital to innovation in this business. We believe that as we add more innovation and technology to our products, we can grow our margins even further into the double digits over time. So now that you have a view of our strong consolidated financial outlook in a bit more detail at a segment level, I want to turn our discussions to one of my favorite topics, capital allocation. So no presentation would be complete without footage of a C8.R Corvette, built and race by Pratt Miller for General Motors. And what better example of good capital allocation at work than our acquisition of Pratt Miller just over a year ago. In fact, Pratt Miller was instrumental in our win of the Stryker MCWS program just over a year ago, and they're already having a huge impact on advancing new technologies throughout Oshkosh. Foundationally, it all starts with -- from a capital allocation perspective with a strong balance sheet and a leverage ratio of 2x or less. You've heard us talk a lot about organic growth and innovation today. To deliver on that growth, we'll continue to invest in our businesses through research and development efforts as well as capital expenditures. When you look at capacity expansion opportunities like, at Pierce and really in all of our businesses, these are very high return projects. And of course, innovation is our lifeblood for the future. So organic investment will always be a top capital allocation priority for us. Moving down the chart, we believe consistent growth of dividends is highly valued by our shareholders. And we've grown our dividend by 10% plus for 8 straight years. We strive to continue to grow our dividend over time, which reflects our confidence that we're going to be a strong generator of cash flow now and in the future. Next is M&A. After a decade or really more than a decade of very limited M&A activity, you can expect us to be much more active. We firmly believe that programmatic M&A will drive accretive growth for our businesses and drive strong shareholder returns. While we favor M&A to bolster growth, the timing of strategic deals can vary from time to time. So share repurchases will continue to remain a very important priority. In fact, today, we're announcing an approximately 8 million share increase to our share buyback authorization, which is approved earlier this week by our Board of Directors. We had approximately 4 million shares available under our previous authorization as of the end of March. So we now have about 12 million shares available. This demonstrates Oshkosh's commitment to share repurchases now and into the future. Before we do a deeper dive on capital deployment, I want to quickly provide a snapshot of our current capital structure. The key point here is that we have ample liquidity to drive growth, access to debt markets with our investment-grade ratings, and we currently have headroom beneath our targeted leverage ratio of 2x or less. So here's a view of capital allocation over the past 4 years and our future capital allocation priorities. The pie chart breaks down the relative deployment of adjusted cash from operations. So simply put, operating cash flow plus R&D spending. Of note, we bolstered our balance sheet meaningfully since 2018, providing us the firepower to drive growth and shareholder returns. And you see that denoted by the blue slice on the left chart. Going forward, we expect to deploy significantly higher investment to organic areas such as to fuel growth. And that's really denoted by the gray slice. And that's what -- that's really going to be driven by higher R&D and capital expenditures. Dividends will continue to be an important priority. While the percentage is relatively flat, again, keep in mind that we expect to generate more cash, so the dollars are growing. You'll also see a significant increase in M&A activity. The range reflects that deal flow can be variable, but the key takeaway is we expect to be active. And I also want to be very clear, despite our plans to be more acquisitive, we expect that share buybacks will remain a meaningful portion of our capital allocation strategy. In years with more M&A opportunities, we expect less cash deployed to share buybacks and conversely, more buybacks in years with lower M&A activity. Overall, we expect to deploy 100% of our free cash flow to M&A and returns to shareholders over time. So let me be clear, we expect to deploy 100% of free cash flow to M&A and returns of cash to shareholders, consisting of dividends and share buybacks. As we think about capital allocation, the formula is simple. Strong sales and earnings yield robust cash flow, and we plan to leverage that robust cash flow to further grow the business and drive strong shareholder returns. So now let's recap what we've discussed today. We have a strong portfolio of businesses, and they're all meaningful contributors to our accelerated growth. In fact, all have 5-plus percent sales CAGR through 2025 and all have the ability to deliver double-digit operating income margins. The strong performance at a business level is expected to contribute the EPS doubling from current year levels to $11 to $13 per share. And we have a disciplined capital allocation approach with a solid balance of organic investment, M&A, dividends, buybacks and all of these will drive strong shareholder returns. Really appreciate the opportunity to share our longer-term outlook with all of you today. And now I'm going to turn it back over to Pat to get the Q&A started. Thanks.

All right. We're going to get started with Q&A here. We've got both online, I see we've had a couple of questions that are queued up, and that's good to see. We've got a good group here in the room as well. We're going to start out in the room, of course. We appreciate you being here, and we'll go for a little while here. And as you raise your hands, which I do appreciate, we do have two mic runners. And I think we'll probably start over here on the left, Brian, and we've got the gentleman at the second round table. Yes, and Chad, state your name and affiliation. I probably should have said that I'm not used to doing that on the conference call.

It's Chad Dillard from Bernstein. So my first question just deals with your guidance out to 2025. And just want to understand, just what's the glide path? What's the penetration of all like the advanced technology you guys have been talking about? How are you guys thinking about that build up to get to where you ultimately want to go in '25?

So Chad, if your question about adoption rates of technology in different end markets that we serve?

Exactly.

It's a great question. I think that it really depends upon the end market. And it's ultimately dictated by our customer base as to how fast they can deploy it. So our expectation is that, for example, in last-mile delivery, there'll be pretty rapid adoption. I think there'll be rapid adoption in refuse collection but it might be a little bit slower in some of our other segments. But the great thing for the technology that we're deploying is that we serve commercial operators and commercial customers that have commercial fleets. And they understand economic total cost of ownership benefits. So even though the price point is higher, when we deploy product with autonomous capabilities in electricfication they understand the total cost of benefits that they get for that. It's not like convincing the consumer of an electric car why the price point is higher and why you should buy it. For us, that economic equation is easier to sell. So some of it will be dictated by, for example, how quickly you can put a recharging infrastructure into a segment or how easy is it to do that, relatively easy in refuse collection a little bit harder in last mile delivery. And so you can't put a number on it because it's just really dictated by the customer's adoption rate, but it will be significant. It will be a material amount.

And just the second question just goes back to your Access revenue guidance out to 2025. I believe it was like a 8% CAGR at the midpoint. Looking back at one of the earlier slides, it looked like nonresidential construction growth is expected to grow by about 5%. I imagine you guys are probably taking some price along there. So I guess my overall question is, is that a little too conservative? How are you guys thinking about that?

I guess just so we look at it, probably a good place to clarify. So obviously, we're in a higher inflationary environment right now. The model really is -- the models assume more moderate inflation going forward. Of course, if we see higher inflation levels, pricing will follow suit as low margins. So I think that's sort of a baseline. But we do see growth. We think it's a -- and we have a -- we've accommodated really a range of scenarios looking out. But again, we expect strong market dynamics going forward.

Thanks, Chad. And I've -- let me kind of do my famous one plus a follow-up. So we'll be disciplined there. Chris, I believe you have a question in the back.

David Raso, Evercore. I was curious on the Access guide, the base is 2022, but then the next 3 years, you're implying an incremental margin of 32% on Access, which for a year or 2, you could see, but that's a 3-year run. I know the base of '22 isn't that high, but I'm curious, that kind of incremental over 3 years, how much of that is traditional volume overhead absorption? How much is it maybe a little footprint change? And how much do you think it's the new products you're going to roll out have that much margin boost?

Sure. David, as I would look forward, obviously, we've talked a lot about the price/cost headwinds that we have this year. And obviously, we return to more normal margins. So really think of 2022 as a jumping off point with some headwinds. As we exit the year, and we've talked about it, we talked about on the earnings call, were -- the back half of the year should be back to more typical margins. So I think that's really what you're seeing there, David. And of course, as we certainly get absorption leverage as our volume increases as well.

Are there any new products that you particularly have changed the margin profile from legacy cycles to the next cycle?

I think as we launch new products, David, I think that we do get a premium on those, and that's really, of course, that's why we believe we'll continue to drive strong margins. So again, I think we expect, based on that we'll get back to normal margins, and then really, I would say, from the back half of the year, if you really adjust from that, you're going to be at more typical incremental margins for Access.

And the related follow-up the growth in Access, is it more North America? Do you see -- obviously, China has a penetration story, but obviously, they're not doing well right now, but you could argue that's a low base to grow from. I'm just curious, geographically, where is the strongest growth in Access from '22 to '25 in your model?

Go ahead.

I was going to say, North America represents a big chunk of the growth because of the fleet age that I talked about, and we're continuing to see new segments as opportunities in North America, but China is also a material growth driver. China has been in a lull for reasons that we all know the past year or so. But China is still the second largest economy in the world. It's got a huge -- well, I should say, it's got a big aerial work platform market today, but so much opportunity to continue to grow. So that will provide material growth. And we're actually looking at the European market as having similar dynamics to the U.S. market in terms of fleet age right now. So we think that that's going to continue to provide a little bit of growth. But clearly, the U.S., I think, is the biggest base for that growth that we see right now.

All right. Brian, why don't we go to Steve here. We'll do Steve one, Steve Fisher then Steve two, Steve Volkmann.

Steve Fisher, UBS. Just to ask again about the Access business. Looking at the peak to peak margins, so comparing what you did in 2019, you had 12.7%. And then your 2025, about 13% with, I think, applied about $1 billion higher revenue peak. So I'm just curious why that peak-to-peak margin might not be higher? I mean sitting today, thinking about getting the 13% margins where we are today, is great, but what are the factors that you baked in there, why that might not be a bit higher than that?

Well, I'd say a couple of things, Steve. Number one, we do view it as very strong margins. Obviously, you need to -- it's still a lot of ways. So obviously, it's highly dependent on product mix. So obviously, depending on what the mix is. You can have some variation in products. There's some regional mix implications as well. And we're really investing in technology as you saw the investments that we shared today. So that's certainly a piece of it as well. But as we look to it, we really view us getting back to at or above those prior peak margins. And again, we're continuing to make very significant investments in innovation.

Okay. Just my follow-up is related to data and intelligent products. You spent a lot of time talking about that. It seems like very helpful to your customers. I guess to what extent is there a separate revenue model for all those services? Or is it just designed to be embedded in the price of the machine and customer loyalty?

No, we fully expect this and it already is to generate new revenue models. Those new models come in a variety of different places. It accelerates, for example, our aftermarket parts penetration and capability because of the ability to do real time and even it will get even more into predictive maintenance for our customers, where it just automatically drives that service part revenue. But also when you look at some of the productivity that we're unlocking with intelligent connected products, it creates the opportunity for recurring revenue through things like subscription. So we fully expect those to create aftermarket and life cycle revenue streams.

Let's bring it up to front. I want to get Steve here. He was early to the meeting and we appreciate that.

I'll be Steve two. So maybe starting with Defense. It looks like most of the growth that you're factoring in is postal contract. But I just want to understand, are you assuming any other contract wins over this forecast period?

So obviously, we have -- coming online, obviously, we have our core tactical wheeled vehicles and you think about that, that's our light mediums and heavies. Then Stryker MCWS comes online. But again, that's a similar timing. We'll start delivering some next year, but that does grow sort of the back half of '23 into 2024. So that's certainly an area of growth, and we talked about postal service. So to the extent that there are other programs that come online that we win that would provide, that certainly could provide some upside opportunity. And obviously, we're working on many, many other programs. But again, as I said in my prepared comments, with a lot of the adjacencies that we're focused on, that many of these are long-term programs, we see further opportunity for our Defense segment to be a growth driver.

Yes, you got to remember the gestation period for the defense program wins is relatively long, as you know, Steve. So when you look at our 2025 projections, its programs already won because the programs that we will win, will really won't generate material revenue until post 2025, with maybe 1 or 2 exceptions.

Okay. And the follow-up, obviously, I guess you're assuming that you keep JLTV. And...

We are. Yes.

I'm just curious how that plays out because I would presume normally that when you win the recompete, at least initially, the margin goes down and then you try to kind of make that back. Maybe I'm wrong about that?

We haven't had that assumption.

Okay. So you're assuming you would keep it at the same margin?

So the current JLTV contract that we're operating on takes us well into 2025. So when you look at the recompete, it's very, very important. I talked today, it's a $7 billion additional program for the Department of Defense. That really starts to influence the back half of '25. So most of a period that we forecast today is still running on the current JLTV contract. JLTV recompete, just like the new -- other new programs that we're competing for, but have not yet won really influences the back half of '25 and beyond that.

Okay, Chris. We have Jamie here?

Jamie Cook from Credit Suisse. I guess my first question, if you guys could size, you talked about the adjacent markets in defense, OMFV, CATV, MCWS, like how big of an addressable market that is? And then my follow-up question is just on the defense margins, the 9% to 10%. I guess I was a little disappointed in that. I was hoping margins can be higher. I understand you have JLTV mix. But as you think about these incremental opportunities, is there any opportunity for the margins within Defense to improve upon those levels?

Yes. Jamie, all these programs are good margin programs for us. That's what -- that's one of the reasons that we pursue these so aggressively. When you look at them in aggregate, it's gigantic the opportunity, tens and tens and tens of billions of dollars of opportunity, there's big, huge programs like OMFV, if OMFV would represent the largest program in Oshkosh history. But then there's other really nice programs like the RCV, robotic combat vehicle, we had some video and a couple of shots in it in my presentation, that's over a $1 billion win, kind of a nice program to go get and good margins for us. So in total, it's huge, but there's a huge variation as well from one program to the next in terms of how big is it and how material is the revenue for us.

I would say from a margin perspective, obviously, I provided a little more color on NGDV today. One thing that I think is important is we're not by 2025 necessarily at full rate production. So there's further growth opportunity. Of course, that does not include broader last mile delivery in the back half of the decade.

Let's go with Tami over here. I'll tell you what, Brian, while you're heading over, I'm going to take one online. There's a couple here around batteries. So combination, can we talk a little bit about our electrification plans with respect to batteries? Are we going to build an in-house? Are we going to use Microsoft? How are we viewing and addressing battery supplies and purchasing and supplying for our vehicles?

Yes. I mean, I'll start. Jay might want to make a comment because she knows so much about this topic. First of all, we've got several battery partners. And we look at them as partnerships. We do not look at this as transactional. You've even seen us make an equity investment in one of those partners. And we -- when I say we're partners, I mean, we do joint program development with them. We pay very close attention together with them into how secure is their supply chain all the components and the raw materials that's needed to make a lithium-ion battery. How much forward are they securing that supply chain to give us comfort that we're going to be able to meet the expectations of our programs. So we do -- these are real partnerships, and there are several, depending on the program that we're involved in and what type of lithium-ion battery does it need. So -- but this is ongoing. This is a concern -- anyone that's in electrification is paying really close attention to who they're partnered with and how secure is the supply chain. Jay, I don't know if you want to make any more comments?

No, I think what you said is spot on. I think I would even just add that we're keeping tabs on technology. Technology is changing so quickly, at least having multiple technology partners here. And I talked about kind of customer-centric. We need to make sure that the overall electrification serves the purpose or the duty cycle that we are trying to design for. So in that space, kind of having access to multiple partners and looking at what is the best solution, how much energy do we need to pack into a specific vehicle, how is the vehicle being used? What is its duty cycle, all of them determine how much battery we need or what type of battery we need. So I think our strategy with our open innovation approach is a prudent one that helps us get ahead of some of these situations.

All right.

This is Tami Zakaria from JPMorgan. My first question is a quick follow-up to that electrification comment you made. I think you're expecting to spend some $300 million, over $300 million in electric over the next 3 years. How much of that is R&D versus CapEx?

That's really the R&D aspect of it. So that's not the CapEx.

It's completely R&D number there.

Got it. And my second question is on M&A. Which segments do you expect most of the M&As to be in? And would you only look into M&As that are accretive from day 1? Or you don't mind buying something that's -- that may not be accretive now, but can be over time, like maybe a start-up?

So we're looking at M&A across all of our businesses. So I won't say that we're prior -- I won't go to how we're prioritizing from one business to the next. We -- ultimately, we always look at what is the expected IRR of M&A that we're doing. So we did -- we talked about Pratt Miller before. We made an investment in Pratt Miller. On day 1 it wasn't necessarily accretive. But as soon as we won that MCWS program, the return on investment was clearly a big pop, and we recognize that return as Stryker goes into meaningful production, which is basically this year. We prefer, when we do -- so when we do technology investment, we also expect strong IRRs, but there could be more of a delay to realizing that IRR. When we do category work, we expect it to be more materially accretive from day 1. But again, when we make category M&A, our expectation is not just taking the segment for what it is today, we believe because of our technology and capability, we can further drive big returns by reengineering purpose built into that category.

Chris, do you have someone...

Felix Boeschen with Raymond James. I just have a clarification on the R&D CapEx commentary. You talked about, I think, $1.8 billion of total investment spend over the next 4 years. Then you talked about $250 million of average CapEx. Does that mean the rest of it would be R&D $800 million or so? And help us understand where R&D is running today? Sort of what's that anticipated increase over time that's embedded in the midpoint of the guide?

Sure. So I guess the $1.8 billion does include a combination of capital expenditures as well as R&D spending and some just general innovation spending. So that's a combination of that, whereas the $300 million is specific to R&D. Generally, I think we did show over the last 4 years, we spent true R&D spending as we're defining it, working on NPD projects. That was -- I want to say off the top of my head, about $450 million over the past 4 years. That gives you an order of magnitude of where we're running. So we are going to be running meaningfully higher.

Okay. Helpful. And then just as my quick follow-up, curious if you could comment about on the firetruck business. You mentioned, I think, a commentary about 50% plus of the average age being older than 15 years in the market. What do you think normal optimal replacement cycles look like? I'm just trying to rightsize overaged versus optimal replacement levels as you guys see it today.

Well, less than 15 years. I'd say -- I mean, certainly less than 15 years. And I think the -- really, the increase in technology that we're able to deploy on new development programs will even drive that a little bit lower because there's so much benefit to some of this technology for a municipality in terms of how efficiently and how safely and how productively the firefighters can operate that there's a desire to get some of this new technology. And that will -- I believe that will continue to pull it down as there's -- those are attractive investments for municipality.

All right. Let's go over here to Mike. And I'll take an -- after Mike's done, we'll do an online here, quite a few.

Okay. Mike Shlisky D.A. Davidson. My first question is, as we look at increasing penetration of EVs and your overall sales, can you comment on the tailwinds for gross margin from that initiative by 2025? Or is it perhaps a headwind until a little further down the road?

I would say just from a -- as we think of EVs, obviously, we have many, many programs that are taking place Postal Service. We talked about Volterra and Jay mentioned that's coming online in 2023. So we'll have some revenue from EVs certainly in that '24, '25 time frame. We really see that amplifying meaningfully as we get into the back half of the decade. So I think it's a more gradual ramp, obviously, in the early days as we're launching these products and then it will continue to grow.

Yes. So a little bit more color on it. EVs always have a higher price point. And therefore, they have higher margin dollars. Sometimes, it depends on the program. Sometimes the margin ratio is similar to what its predecessor was. Sometimes the margin ratio is higher. It depends on the program that we're working on. But there are always higher price points and always higher margin dollars. There isn't -- and so with that, there is not a headwind with the new vehicles that are going into the market. If anything, there's a little bit of a headwind because we're aggressively investing in R&D, and that creates a little bit of a headwind. That's all put into the numbers that Mike shared with us, that heavy R&D spend. But we think that that's a great continuous investment for the future of our company.

Great. And as my follow-up, as we look towards your moving to EVs and final mile, you're definitely seeing willing to eventually pursue customers outside of the USPS or at least probably your customer in the USPS. You've obviously been able to with Volterra, make a larger truck on your own that can fulfill a pretty heavy duty application as well as your EV waste trucks. I'm kind of curious if at some point in the future, you would pursue heavy truck sales for other location of patients that might be a strip chassis for a third-party self-fit onto or even just box trucks for kind of meal delivery beyond just your final mile?

Well, we have not pursued the last comment you made, third-party chassis to this point in time. Our focus -- what we're really good at, when you look at our capability, we're really, really good at purpose-built vehicles. That's what we're the best at. So those are the opportunities that we look towards. And we have so much opportunity in last mile delivery, in the -- not in the midrange, but in the range we're in today that first priority, first and foremost, is to bring the U.S. Postal Service product to market in the end of 2023, that last quarter of 2023 is start seeing them hit communities. Our priority one is to make that happen. We're on track with it. We feel great about it. And then you'll see us continue to advance further into other fleets as well because we believe that we have an incredible capability that we've developed in this segment that drives better productivity and better safety. And so there's a lot going on to expand it beyond the U.S. Postal Service as well. But I want to make sure everyone understands, priority one is U.S. Postal Service.

All right. I'll tell you what, we'll go here to Byron after an online. So we've got a comment here or a question, do we envision any changes to our manufacturing footprint or strategy through 2025? Do we see any need for -- potentially any need for restructuring?

Well, all I will say is we've made footprint changes in the past year that's expanded F&E. It's expanded JLG's capability to continue to deliver to these strong orders and strong backlogs that we have. We'll continue to make investments in our manufacturing footprint as we go forward. I won't comment on are -- is there going to be a big new plant somewhere or anything, but we will continue those investments. And I'll also tell you the best -- we look at our capital plans. One of the most important things we do is where are we going to invest our capital as management. And one of the absolute best returns we can ever get is making investments in our manufacturing capacity and capability. We're making investments right now and expanding Pierce. The IRRs and the ROIC on these investments are huge. There is no better place to put shareholder money than continuing to allow Pierce to expand prudently to meet the growing orders and backlogs that they have. So we'll continue to do that going forward. It's one of the strengths we have and you see these strong market dynamics. One of the things we can do is we actually have a capability to invest and deliver to those strong market dynamics.

Byron? Sure.

Byron Callan, Capital Alpha Partners. Two questions related on Defense. Talk a little bit about the demand signal coming out as a result of the war in Ukraine right now. I mean are you seeing a flow of inquiries? And when would that start to really materialize where you could kind of quantify that, that might be? And then the second question is, I'm really fascinated with the relationship with Hanwha on the optionally manned fighting vehicle. Where can that go? Because they've done very well internationally. Can you take that relationship into the markets around the world?

Yes, great questions. First of all, on the Russian invasion of the Ukraine -- of Ukraine, I'm sorry. We've had lots of inquiries. As I said in my prepared remarks, we do a lot with Eastern European countries and supply to them. We've got contracts to supply JLTVs, for example. A lot of inquiries have come in. So -- but we do not make JLTVs, for example, kind of one of our primary products to stock. So when an inquiry acquire comes in, they say, "Hey, we need vehicles right now." We don't have the vehicles to ship. So what we do is they go to the DoD, the DoD then has the decision to supply immediate request to NATO countries. And then the DoD would backfill any of those quantities that they supply to Eastern Europe to Oshkosh Corporation. That's what happens in the immediate term. In the longer term, of course, direct -- we do direct sales as well. Those direct sales come in and those represent opportunities for more long-term growth because there's lead times to it. As I said, we don't build the stock. On your question about Hanwha, strategic partnerships for our defense business are really, really important. Our defense business has done an incredible job of creating really good strategic partnerships. Hanwha is a great example of one of them. It was a part of the Stryker MCWS. I mean Hanwha was a really important piece of that and our ability to do what we did to win that program. Hanwha is a strategic partner on several of the other programs that I mentioned today. So they're going to be a good partner for us, I think, for a long time.

Dillon Cumming, Morgan Stanley here for Courtney. Maybe just to go back to your access commentary for a second. I appreciate the kind of factors you're mentioning in terms of the average age of the fleet being elevated. It makes sense. Customers want newer products, lower maintenance costs associated with that. But I don't think that average elevated fleet age is necessarily unique to aerial equipment. So I'd just be curious what actually gives you conviction that your customers actually want to work that down over time? And maybe it's not just a factor of your rental customers getting better at managing an older fleet.

Our customers in the Access Equipment segment are very savvy. And they know the economics of their business, they're really -- they're good operators. The small rental companies to the big national rental companies, they're all smart operators. They know the dynamics of the fleet and fleet age and the investment in the fleet and how to drive returns. So the best evidence of that is we have a $4 billion backlog right now. I mean typically, Access and a normal cycle Access might have a quarter or 2 of backlog, and we've got a year of backlog right now, that's indicative. And as order rates continue to be strong, that's indicative of our customer base understands that they have to continue to renew their fleet, and they've got to accelerate renewal of their fleet. And that's why you see some of these strong dynamics.

Okay. Got it. And then just a follow-up on M&A. That kind of implied percentage you mentioned, the 25% to 35%, that's a pretty big notional dollar amount going forward. Can you say it today, do you have pipeline visibility to actually provide like line of sight to like that amount of money actually getting spent kind of over the next 3 years?

Yes. As you know, M&A activity is always a bit lumpy, right? And you always have to be very unemotional about it and very objective about what decisions to make. We have an active pipeline of targets that we look at on a regular basis together with the presidents of our big businesses we're always at any given time, we're always looking at different targets. And so the expectation is that we'll continue to have and have even some bigger opportunities as we go forward. But again, it is lumpy and M&A work is always a little bit unpredictable as well. But we certainly believe we know we've got a lot of opportunity. It's how can you effectively execute on it while still making smart moves, right?

We're going to take an online here. So this regards our Commercial segment. And we've got a target out there of double-digit operating income margins. We've had it for a couple of years now. And what do we think the key drivers are that drive us towards believing that we can hit that 10% operating income margin?

And as I said in my prepared remarks, we really look at it, and it's not different than what we saw in the Fire & Emergency segment. It's a combination of strong and consistent innovation. We talked a lot about my comments and in John's and Jays that we plan to invest a lot in innovation and including in that segment, so that's a piece of it as well as the simplification work that we're doing, our focused factory approach that's lowering our manufacturing costs over time, creating efficiencies. And again, it's really a page out of the same playbook that Anthony ultimately drove. And again, as we look out to 2025, that's still that outlook still includes very meaningful innovation. And so we truly believe that's just the beginning of the margin opportunities in that segment to continue to grow.

And Jay talked about the vitality index and what we are doing across the company to improve the vitality index. And indeed, we are, that means that we're developing and introducing more new product into the market than we have in the past. New product with new technology always drives better margins. And so that's certainly a nice piece of it.

We'll do another online and then we'll go to Mike. So in the last-mile delivery vehicle market, how do we see Oshkosh differentiating itself in a space where certain new incumbents are partially owned by the likes of Amazon or others? Several others are well funded. There's some well-funded start-ups out there that have entered the market. How do we see USPS contract serving as a differentiator for Oshkosh in that space?

Well, first of all, as I said, the United States Postal Service represents the largest fleet of last-mile delivery vehicles in the United States, probably in the world. So all of -- that alone is a big statement to the vehicle that we designed and just how good it is, the productivity it drives. We studied the last mile delivery operator in our case, the postal carrier, and how they have to operate every day and what we could do down to the most minute detail and meaningful technology to make it more productive for that person to operate. And this is a revolutionary product as it comes to market next year, I think it will be fairly clear in terms of how good the product is. But you don't win the U.S. Postal Service ran a really good process. They ran a multiyear process, and you don't win a contract like that unless you've really got strong capability and you'll see it in the product that we deliver next year. And you'll -- I'll put us up against anybody. Certainly, better than anything that's in the market today.

So when we think about your segments...

Mike, can you announce your name and affiliation?

Yes. Sorry. Mike Feniger, Bank of America. Appreciate that. When we think of the margin expansion to 2025, when we think about the segments, any of them more back-end weighted. We've heard a lot about the innovation spend. So I'm just curious, when we think about that $1.8 billion out to 2025, is that front load? Is that evenly dispersed throughout the next few years?

Obviously, we're in a circumstance this year, we obviously have the price cost headwinds. We expect that, as we talked about, even returning to the back half of the year, we expect more normal margins for many of our businesses. So -- and then it's going to be a trajectory after that. And you could have -- some could be a little faster, others could be a little slower. But I think overall, we see a good steady progression once we get past. I think it's really, number one, you get past the timing of the cost price headwinds. And that's a little bit different depending on the business. And from there, I think you'll see a progression over time.

That makes sense. And then when we think about just cost inflation out till 2025, I mean, what are you kind of embedding in your assumptions out to 2025? And if we are in a higher inflationary environment, how does Oshkosh have to evolve with that rather than just maybe just being a transitory year?

Yes. I think ultimately, our assumption was -- obviously, we're in high inflation right now. Obviously, there's a level of predictability that's challenging exactly what that curve looks like going forward. So we assumed more traditional lower single-digit inflation levels going forward. Of course, if we see higher levels, you've seen the discipline we've had from a pricing perspective. We'll obviously raise prices and the margin will follow accordingly. So that's how we view it. But again, that exact trajectory is obviously challenging to see right now.

Okay. We'll take an online and then we'll go to Steve after that. So this one is for you, Mike. So we're currently in a modest net cash position. If 100% of our free cash flow is deployed to M&A and shareholder returns, as you said, we'll still be in that net cash position. So how are you thinking about the optimal net cash or leverage for the business?

So as I said in my prepared remarks, that's giving you sort of a representational view over time going forward. And I also said in my prepared remarks that we have headroom to our 2x -- or below our 2x leverage ratio. What that means is we have the ability, obviously, to deploy more capital. And obviously, talked about the order of priorities. So obviously, M&A is going to be a huge priority as we look to deploy additional capital. And of course, looking at organic growth activities. So that's how I would look at it over time. That's obviously -- there's additional capacity, which we view as an opportunity to further fuel growth.

Steve Barger from KeyBanc. With all the focus on innovation, can you talk more about the R&D hub at Carnegie Mellon? How will that technology flow through to you? When do you start to see timing? Will you end up owning any technology that you can license to other companies?

Yes. So do you want to answer that?

No, go ahead.

Yes. Carnegie Mellon was a really important partnership for us because of their strength in autonomy. They have -- it's also a recruitment strategy for us because we want to recruit great autonomy engineers and a lot of them come from Carnegie Mellon. But the partnership gives us the ability to do joint development. And it's -- this is very new. It's in its infancy. So a little bit difficult for me to predict how long it's going to take to when exactly will we bear fruit in terms of programs. But we're really, really think that this is a smart move for us long term as a company.

No, I was going to add, so we have university partnerships. A part of that is addition with obviously Carnegie Mellon because of the strength in autonomy. We've got MIT, we've got areas in Wisconsin, Madison, multiple schools. At Carnegie Mellon, we are establishing our footprint, we'll be starting an office there with engineers. We will be selecting key R&D projects that solve a specific challenge that we leveraging the technology versus us trying to solve it. And that may flow into multiple autonomy programs as we go through. So it is an R&D co-development exercise. And additionally, as John mentioned, we get to access talent, having us being present on the university campus, gives us access to talent. And there's a huge ecosystem of start-up companies around Carnegie Mellon. If you see that list, there's hundreds of startup companies. So we believe it really extends our reach, not just with Carnegie Mellon, but in the overall ecosystem. Is it...

Yes. It's a good point.

Yes. I'll take another online one. So given the current state of the labor market, what are we doing to make sure that we get the right talent we need and to have the right resources for achieving the plans we've stated for 2025?

One of the great strengths that we have as a company is we've got -- we're very -- we've got the ability to recruit talent at a lot of different levels where we need talent at any level that we need talent. I mean it's always amazed me our ability to recruit. We have incredible data scientists is one example. We've been able to build this group of really fantastic smart data scientists up to PhD levels because they are -- they want to work on our people -- I should say, people, me included, want to work on our programs. They see the purpose, they get -- people get to work, engineers get to work on a critical Defense vehicle or a critical F&E program. And that's really interesting to a data scientist or another engineer. Might be very different from going to work for a gigantic company and almost feeling like you're in a factory, people get to work on and get to be a meaningful part of big programs for us. That's a hugely attractive thing for us to recruit. So we've got this great capability to recruit, and I'm not going to deny the fact that everybody has seen higher turnover with resource constraints that we have going on in the economy, and we're wrestling with that when you have turnover, it creates a level of inefficiency, whether it's in the manufacturing plant or within your engineering force. But we also have a great ability to continue to attract great talent to our company. So we think that while we're being impacted just like anybody else, we think that we're able to deal with it better than a lot of companies because of who we are, the purpose that we have and that creates a desire to come to work for us.

Me, I don't think -- when we go to the universities, when we see fresh college grads, I'm speaking engineering specifically here, they really want to make a difference in the world. They want to work on cool technology, any technology they can work on any of the consumer companies, they can do the same work here at Oshkosh and they want to make a difference. We hear that over and over again, makes it very attractive for engineers to be a part of our cost because they actually get to make an impact and they can see their work going on our products and really launching it. So that's what I think keeps us very interesting from a talent perspective.

I'll tell you what, let's do one more online, then we'll hit the -- in the room. So Jay, I'm going to keep you talking here. You've been with the company now for just under 6 months. What has surprised you about Oshkosh? Maybe both positively? And is there anything that you would say you'd like to improve or change?

As I -- I get asked this question a lot, that -- and as I mentioned in my prepared remarks, right, the excitement around Oshkosh about our overall engineering capabilities, I can't underestimate -- I can't say that enough. It's incredible talent we have. And the people and the passion and the innovation spirit and this desire to go take on something and solve a problem and really make an impact. To me, that is -- that DNA really sets us apart. It is much stronger than what I was expecting coming from outside. So I'm really thrilled to be a part of the company.

We'll take this question from the floor, and I think we'll take one more online and then I'll turn it over to you, John.

Yes.

Adam Bubes with Goldman Sachs. So wondering if you could just expand a little bit more on the M&A pipeline. Particularly, I'm interested how the margins and organic growth profile of the businesses you're looking at compared to your portfolio today and how that factors into the targets?

Well, I mean the reason that we do M&A is to accelerate our growth, as I mentioned earlier. And the reason that we're accelerating our growth is to accelerate our operating margins and our EPS. I mean, it's -- that's our objective to accelerate growth is driving margins and EPS. So every time we execute it or get interested in a target, it's because we believe that we can do that. We see the synergy opportunity to do that. As I mentioned a little bit earlier, sometimes that synergy opportunity can be immediate. Usually, that will be when it's more aftermarket oriented or it's more category-oriented, where you can immediately get into a new category from day 1 of an acquisition. Technology, again, typical for that, maybe to have a little bit longer gestation period until we really can realize the synergy in terms of creating revenue growth and earnings growth. But every time we do an acquisition, the primary thing we look at is what is the core synergy that's going to enable us to drive that growth in revenue and growth in operating income. I mean that's the debate that we have constantly about all the targets that we look at.

Okay. How about our last one here. There's a couple that I'm going to kind of pull together here with competing for the JLTV recompete, other programs looking out or certainly were in this inflationary environment, how are we kind of taking that into account? And what are we expecting over the next couple of years?

Sure. As we look at -- and we've been doing this for a long time, bidding big government contracts and when we approach, there's large portions of the cost that we do lock up front, including both materials as well as labor and conversion costs. So we're really -- again, we'll continue to follow that playbook and -- and really, as we talked about it, while we had an unfavorable cumulative catch-up adjustment this past quarter in the grand scheme of the programs, not significant, and we see our margins have been quite resilient as we look at our program margins in defense over time. So again, we're going to continue to leverage that playbook going forward.

All right. With that, John, why don't I turn it back over to you for some comments?

Yes. I'll just 30-second wrap-up to the formal meeting that we've had today. First of all, we greatly appreciate you attending. Those of you who are here in person as well as many, many people who are virtually connected. We will have lunch, by the way, we'll be staying around for lunch. If you want to stay around, we'll be here if you need to get off to another meeting, you can grab a box lunch and take off. Final comment. We're clearly moving into a period of accelerated growth that we've talked all about today. We're really, really energized to go out there and continue to execute to this. Again, thank you for your time and attention. Greatly look forward to continuing our relationship. And for those of you that attended virtually, I really hope we get to see one another in person at some time in the near future. Thanks very much.